Chapter 2. Courtship

The best way to predict the future is to create it.

—Peter Drucker

I call the first stage of organizational development Courtship. This stage precedes the organization, which has yet to be born. It exists only as an idea.

Figure 2-1: The Courtship Stage

Building Commitment

In Courtship, the emphasis is on ideas and the possibilities the future offers. The would-be founder is excited and enthusiastic and "sell- ing" everyone on how wonderfully his idea is going to come out. To whom is he really selling the idea? Whom is he working hardest to convince? Himself!

There is something very important taking place. During this time, the company is like a jet sitting at the end of the runway prepar- ing for takeoff. The pilot is revving up the engines, creating a lot of noise. Why the noise? The jet isn't even flying. The pilot is building thrust and momentum so that once the brakes are released, the jet will take off quickly and smoothly. Likewise, the Courtship stage of development is characterized by lots of talk and no action, but what is happening is critical for the future success of the company.

Lest you miss my point, let me emphasize that the founder is building commitment. At the same time that he is testing the idea on others, the founder is building his own internal commitment to the idea. He's wondering what everyone else thinks. Is it viable? The more he succeeds at selling his idea to others, the stronger his own commitment grows. This process is crucial for the healthy "birth" of an organization. Why is it so important?

He who has a why to live can bear almost any how.

—Friedrich Nietzsche

I have named this stage Courtship because the situation is not so different from the prelude to marriage. At what point are we real- ly married? Not when we put rings on our fingers. We are truly mar- ried when commitment happens, is tested, and survives the test. When are we divorced? Not when the judge signs the papers. Rings and papers are only formalities. The marriage is dead when there is no more commitment to keep it alive. It is commitment that makes any organization-marriage, business, or society-viable.

For a plane to perform the function for which it was designed, it must first take off. To become airborne, it needs forward thrust- the momentum it builds during the engine revving stage. Similarly, for an organization to start performing the function for which it was designed, it needs to undertake risks. No risk is taken without commensurate commitment, and it is during the Courtship stage that founders build that commitment.

If you want to gauge the viability of your organization, you should assess the commitment of all who are related to or associated with it.

You should consider not just your managers. Ask the same questions of your employees, customers, suppliers, and other stake- holders from your community.

Excitement, enthusiasm, emotion, and passion for the subject- coalescing energy to a single point-these are the signs of building commitment. Such a process can generate abnormal or pathological problems. Like lovers building mutual commitment, company founders are given to making unrealistic promises that could cause problems later on. The regrettable promises of Courtship seem almost inevitable. In exchange for vague assurances of support, the excitable founder promises and gives away shares of the future com- pany to family members, lawyers, and friends. At the time, the promises are easy to make. After all, at the Courtship stage the com- pany has no tangible worth. The inexperienced founder doesn't believe he's giving away anything significant, but later on, when the company is worth something, his lavishness will return to haunt him.

Just as in marriage, where love nourishes commitment during Courtship, founders must fall in love with their ideas for companies that will build and sustain their commitment. Later on, when their companies come into being, it is the founders' commitment that sus- tains their motivation during the difficult challenges of early devel- opment-Infancy.

An organization comes to life when the founder's commitment has been successfully tested; that is, when the founder and investors undertake risk. Conversely, if no one shares commitment for an organization, it dies. Courtship needs to build commitment com- mensurate with the risk associated with bringing the organization to life. The higher the risk, the deeper should be the commitment. As Conrad Hilton said, "If you wish to launch big ships, you have to go where the water is deep."

If we know the weight of the jet, we can tell the pilot how much thrust it will take to lift it off the ground. If we can predict the bumps on the road map of a marriage, we should be able to predict how much commitment will be needed to avoid divorce. If we know how much risk a fledgling company will face, we can tell its founder how much of his and other people's commitment will be required to launch a successful enterprise.

When innovators bring me their new products and tell me they want to start companies, at first I do not listen to what they say. I listen to who says it and how it is said. To create a successful company, one needs more than just a good idea, a market, and the money to back it up. What every new company needs is a committed leader-someone who is willing to lose sleep once the company is born, and who can bring together the idea, the market, and the money.

It's important to test the noise level-the sound of the revving motors. How committed are the founders? Have they made signifi- cant financial commitments to their endeavor? The bigger the task, the more zealous the commitment must be. Commitment must par- allel the long-term difficulty of turning the idea into a viable business. I base the assessment of the necessary level of commitment on a number of factors: The complexity of putting the business togeth- er; how long it will take to see positive results; and the degree of necessary innovation. I estimate the last factor by estimating how many existing "sacred cows" must be slaughtered.

Too many people want to make big money with small commit- ments. It simply does not and cannot work. If there is inadequate commitment, all the energy will be spent on labor pains, and a still- born organization is delivered.

We can examine the relationship of commitment to risk on a macro level, too. For example, we can predict the success or failure of a revolution by looking at the commitment of revolutionaries. The task of changing a society is immense. To bring about a significant change, revolutionaries must be willing to die for their cause. Talk and rallies are good for prime-time television, but the magnitude of a commitment is measured by the price people are willing to pay.

Commitment-or lack of it-is what sustains-or destroys-an emerging enterprise.

Without substantial commitment, organizations break apart when they encounter rough times.

Founder: Prophet or Profit?

When we talk about commitment to undertake risk, we should also ask: What is the source of the founder's commitment? What moti- vates the founder or product champion? If the founder's motivation is only to make money, that will be insufficient to sustain the enterprise through this Courtship stage. No one knows for sure what kinds of profits a company might produce. When a baby is in her cradle, is her parents' motivation to feed and change her so that when she grows up she will be a doctor or a lawyer who can support them in their old age? It better not be.

The motivation of a founder has to be transcendental; it must exceed the narrow limits of immediate gain. The commitment cannot be strictly rational. First and above all, founders must be emotionally committed to the value of their ideas in the marketplace. The idea should obsess them. Founders should be responding to a perceived need. They can't help but satisfy that need. The profits or money the product or service will produce merely validate their belief in their idea.

In Courtship, the founder's motivating goal should be to satisfy a market need, to create value, to make meaning. Founders should be excited about the needs the product will satisfy; and when chal- lenged, they should defend the functionality of their product and its service. If we were to ask founders to describe their creations five years hence, they should describe companies that service clients increasingly well-that satisfy needs more effectively. If founders speak exclusively about the return on investment (ROI), commit- ment won't sustain their companies should difficulties arise. Of course, without profits, their companies will die. While poor ROI can kill a deal, the promise of ROI can't make a deal. To make deals you need founders who believe that their products or services serve real needs and that there are live clients who will appreciate what the founders have started.

If a person plans to form a company because he anticipates a good return on his investment, he is like a prophet who speaks because he wants to go to heaven or a woman who yearns for a child because she wants to have a doctor for a daughter. The prophet does not want to go to hell; the woman does not want to have a child who can't hold a job; and, the founder does not want to go bankrupt. Return On Investment is a controlling, not a driving factor. ROI can- not engender an organization, but lack of ROI can eventually bring about its demise.

People who are exclusively interested in money or ROI will get discouraged and quit before profits are realized. After all, business isn't always profitable. Ideas must be made operational, and that process usually involves at least a few mistakes that postpone profitability. A baby requires parents to care for her through all the dis- eases of childhood. It's not all smiles all the time.

A successful Courtship is one that focuses on issues beyond the potential for profits.

Profitability is like a scoreboard in a tennis match. You can't win by watching the scoreboard. The scoreboard tells you only whether you are winning or losing. To actually win a game, you must hit the ball over the net into the opponent's court. Each volley is another opportunity to improve your performance. Players might not hit each ball right, but each volley is like a new game, starting from zero. When one is learning to play, the score is meaningless. A person must be committed to the idea of learning the game first and to winning it later. The same is true of emerging organizations. Founders must be determined to hit the ball. They must be aiming to satisfy their clients' needs as measured by sales first, second, and third. Only after that is established as being successful will the score- board-profits-come into question.

The commitment to client needs is independent of whether or not the client perceives the need. Founders, like prophets, forecast needs as they perceive them-not necessarily as expressed by poten- tial clients. Thus, the founder talks about what the market should buy, not necessarily what it is buying. If market needs were known, and if the market already had expressed its wishes in high sales volume of the product or service, the innovation and risks would be lower and the project would demand lower commitment. In such a case, we are seeing not a prophet who gives birth to a movement, but a "me-too" exploiter of trends. Even in that case, there must be enough commit- ment to pay the price that makes that exploitation work.

Entrepreneurs who start companies focused on needs that have yet to be identified or expressed are product-oriented rather than market-oriented. Even they can't easily describe the need their products aim to satisfy. Rather than responding to established needs, they try to educate and change the behavior of the market. They, in a sense, express what should be the need of the market. Through their actions, they articulate and operationalize that need. They are more business prophets than business entrepreneurs. 2 And like other prophets, they can be crucified because, in the short run, the power structure will reject them. No one understands their messages until their products prove themselves.

Founders are highly vulnerable to those who promise to help them sell or finance their ideas. In exchange for the promise of mar- keting and financing, the newcomers are likely to take significant shares of ownership. And the prophets, the founders, whose devotion is more to their products than to control and ROI, end up losing con- trol of their companies to venture capitalists or fast-talking marke- teers who get to enjoy the fruits of the innovation, measured in money and recognition, while the founders are frequently ignored or forgotten.

Why, despite any number of marketing courses, are prophet/founders not market-oriented? Prophet/founders focus on what the market should want, and they dedicate their energy to developing the product or service that should satisfy that need. Consequently, they must be product-oriented until they can develop products of acceptable quality, capabilities, and functionality. Prophet/founders fight the dilution of their dreams, always speaking of the reality they are trying to create, not the reality they are willing to accept.

Observers accuse many founders of being ignorant of market- ing strategies and realities. This phenomenon is normal. To quote George Bernard Shaw: "Reasonable men adapt to their environ- ment; unreasonable men try to adapt their environment to them- selves. Thus all progress is the result of the efforts of unreasonable men."

As we will see in the next section, founders' commitments to products they believe the market should have rather than to prod- ucts the market wants, and their relatively low commitment to prof- it, may later become pathological problems for their companies. Founders might not know when to give up their exclusive dreams. They may be too product-oriented for too long. They won't compro- mise even to get their products or services in the market. They act according to their perception of what should be for far too long.

Even founders who progress beyond product orientation might find it difficult to make the transition to profit orientation. That tran- sition requires attention beyond the technology of the product or service. When it's time to focus on client interface as well as financial and human factors, those elements of management may be beyond the founders' experiences. Nevertheless, many founders insist on making all strategic decisions alone-and at their peril.

What Is Going On? What is normal at one stage of the lifecycle can be abnormal in another stage.

Fanatic commitment is necessary for a successful Courtship and its successor, Infancy; but in later stages, it can become pathological. For example, consider a company that is chronically losing money because its product or service is misplaced in the marketplace. It needs to change and adapt to client needs. Founders who fight that reality because of their dreams are like overzealous parents who deny, and thus do not act on, their child's psychological problems because they are blinded by the image of what they believe the child should be. In some cases, the more founders fight reality, the deeper into trouble their companies sink. They hold on to their dreams. Their fierce commitment to their ideas is what sustains their creations through the very early stages of Courtship. At a point in the next stage, Infancy, founders need to know if it's time to let go of their dreams and adapt to reality. That paradox makes it difficult to appraise the qualities of good founders. If founders are committed, can they let go? If they are capable of letting go, are they committed enough?

Investors encounter another problem. Highly committed founder/innovators are highly charismatic, and their commitment can be contagious. They believe in their innovations; they believe in themselves. It's easy to confuse them with pathological liars or con men. Many investors have found themselves caught in the webs of fast-talking, apparently highly committed and enthusiastic innova- tors who, it turns out, were selling snake oil. If it seems too good to be true, it is too good to be true. Investors should check how much founders personally have at stake. Watch out for anyone who uses Other People's Money exclusively.

Healthy founders are highly committed, and, at the same time, they have an eye on reality. They are committed, but they are also willing to learn from experience. A founder should be a reasonably unreasonable person-someone who has fanatically strong beliefs and is still able to listen to reason.

Building a Commitment Correctly

It is normal to have doubts during the Courtship stage. Conversely, to have no doubts whatsoever can generate pathological problems down the road. The founder should be able to answer these questions:

• Why are we doing this?

• Who is going to do it?

• What exactly are we going to do?

• How are we going to do this?

• When should we do it?

Note that the focus is on why-who-what-how-when we are going to do, not why-who-what-how-when I am going to do. The founder must realize from the beginning that he or she cannot do it alone.

Please also note the sequence of the questions. The most impor- tant of those questions are the why and who questions. Next in importance are those that ask what and how. Why start a company, or a unit within a company, or even the seed of a future unit by spending resources on a new product or new market?

Is there a need? Can we develop and nurture the need? Do we have the capability to provide and satisfy the new need? Note that I am skirting the question: Is it within our capabilities? That question applies more to an established company. In that case, be careful. The people who answer that question have vested interests and will give a negative response to protect their turf. That is why the personal computer had difficulty growing in the mainframe environment of IBM and Digital Equipment Corp., and the cellular phone got nowhere in AT&T. Later, when AT&T saw the proven market for the wireless, it bought back what it had invented in the first place- for more than a billion dollars. This point will become clearer when we discuss how structure impacts strategy-how structure can age an organization and dampen its capability to innovate and grow.

The who question is also critical. Many innovator/founders have difficulty managing money and marketing and promoting their creations. The problem is similar to artists who are ill at ease negotiating the price and, by implication, the value of their own art. They do fantastically well representing others, but they can't negotiate on their own behalf. It's not unusual for an innovator to have difficulty selling his or her own creation. So the new product-even if it's a winner-doesn't easily penetrate the market, and the company suffers from debilitating cash crunches.

To overcome the problems of starting businesses successfully, the government of Israel has funded a number of incubators to nour- ish innovation and nurture emerging businesses. An inventor who wants help promoting his or her innovation can submit a proposal that describes a new idea or product and demonstrates a need for it. The proposal should also describe other products or services the innovation will replace and provide an estimate of the amount of capital necessary to commercialize it. The experienced executives who serve as the incubator's advisory board review each proposal. If they believe in it, they allocate a sum of money and appoint a project manager to manage the finances. Eventually, they will designate a marketing manager to search for strategic alliances or identify dis- tribution channels. In exchange for all that, the innovator yields a percentage of ownership to the incubator, and the incubator redeems its equity when the new company goes public, is sold, or merges. The incubator never maintains ongoing ownership of the companies it has established. The ROI from successful ventures finances other endeavors. The project manager and marketing man- ager also get stock. Instead of doing everything on their own, inno- vators have the support of a complementary team in a nurturing environment.

I have found that answers to the what and how questions are secondary. What exactly we are going to do changes as the company gains experience. The answer to the how question is even less reliable. The how changes almost daily until success is realized. Nevertheless, from the start, we need to think about what and how, continually adapting and changing as our experience grows.

Is It Real True love, or Is It Just an Affair?

Figure 2-2: The Affair

A Courtship that can't withstand reality testing is only an affair. If at the first sign of obstacles, commitment evaporates, it is a Courtship with pathological problems. The would-be founder has fantasiesCourtship 31 about how things should be, but they are grounded in nothing more than wishes. The idea never progresses beyond the dream.

During Courtship, pathological problems do not look like prob- lems because they don't seem difficult and they cause no pain. Everything is rosy. That is precisely why Courtship's pathology is so dangerous. It can give birth to an Infant organization, but because nobody has tested the idea, the Infant organization will be ill-pre- pared to deal with reality. There was no reality testing at conception, and now nobody is prepared for the newborn infant.

Compare the formation of a business to the transition from rosy courtship to the reality of marriage. In some cases, it can be quite devastating. It's worth dealing with hard questions at an early stage. The process of writing a prenuptial contract convinces many couples to cancel their plans to wed. Similarly, when we get excited about a business idea, we may start negotiations to form a partner- ship, but once we work out the details and put everything into writ- ing, it may not look quite so exciting. As the Arabic expression says: "The devil is in the details."

What, then, defines the birth of a company? It's not the signing of articles of incorporation. A company is born when there is some tangible expression of commitment-when the founder undertakes risk. Risk has a number of manifestations: A person quits his or her old job, signs an office lease, or promises to deliver a product on a certain date. When the founder incurs and undertakes substantial risk, the organization moves to the next stage of development, called Infancy.

Problems of Courtship

Normal	Abnormal
Excitement, reality tested	No reality testing of the commitment
Details thought through	No details thought through
Realistically committed founder	Unrealistically fanatic founder
Product orientation-commitment to add value	Exclusive ROI-profit orientation
Commitment commensurate to risk	Commitment not commensurate to risk
Founder in control	Founder's control is vulnerable